Why not MORS?

Jim Huston answers the question: Why do you disagree with the MORS estimating method for pricing landscape and irrigation work?

Jim Huston

Published July 12, 2010
Jim Huston

Why do you disagree with the MORS (multiple overhead recovery system) estimating method for pricing landscape and irrigation work?


I taught the MORS estimating method for three years. Why I now disagree with it is that MORS has a number of erroneous mathematical assumptions in its arithmetic for allocating general and administrative (G&A) overhead. These render it inaccurate for pricing work. Let me explain just one flaw and give some examples.

MORS typically uses three fixed percentages for allocating G&A overhead costs. They are 10 percent for materials, 25 percent for equipment and 5 percent for subcontractors. The markup percentage added to labor and labor burden costs is derived from a company’s annual budget and is a bit too involved to explain here. We’ll use 54 percent in our examples.
Net profit is then added to the total for each cost category.


The first problem that MORS has is justifying the three percentage markups – 10, 25 and 5 percents. These figures have no mathematical validation. They are simply pulled out of thin air without any objective analytical substantiation. Those who assert that such substantiation exists need to provide the data to support their claim. None have ever been provided for public scrutiny.

Second, we can illustrate the mathematical flaws in MORS quite easily. We do so by using three jobs that last one month. First we have to set-up  our sample jobs from a sample company.

  • G&A overhead costs per month are $10,000 or $120,000 per year.
  • The payroll cost for the entire field workforce (with burden) is $13,000 per month or $156,000 per year.
  • The markup applied to field payroll and burden is 54 percent.


The Analysis

If your costs for G&A overhead each month is $10,000, your estimating system should calculate that amount of G&A overhead costs to include in your work. The inherent flaw in the arithmetic in MORS becomes quite apparent with these three scenarios. Job A contains roughly one month of G&A overhead cost ($10,070) in it. That’s great (and accurate)! Job B overstates G&A costs by $1,570, while job C understates G&A overhead costs by $1,430. In the current competitive market which job do you think that this contractor will land? She’ll more than likely land the job that she underprices.

The math in MORS falls apart pretty fast when put under critical analytical scrutiny. You simply have to vary the direct costs while keeping the duration of the job(s) the same. The secret for getting lots of work is simple – underprice it! You’ll get more than your fair share of work doing so. And using MORS to price your work will help you do just that.

 

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